Tennant Fails to Clean up

This article is part of our Real-Money Stock Picks series.

Anyone who has missed the prevailing themes of the current earnings season can find them in industrial cleaning products purveyor Tennant Company's (NYSE: TNC  ) quarterly results. Envision the words "WASH ME" written in a layer of dust as many customers put off purchasing its cleaning equipment. Still, factors indicate there's no reason to panic about this stock.

Delayed beautification
Tennant's third-quarter net income dropped 10.3% to $8.7 million, or $0.46 per share. Total sales decreased 4.7% to $178.3 million. The first half of the year had yielded sales upticks, but in the third quarter, business has slowed down for this cleaning equipment provider.

According to Tennant's CEO Chris Killingstad, North America, the company's largest geographic region, slowed down instead of improving as expected. Large customers decided to delay capital equipment purchases like the machinery Tennant provides, and the company's direct channel and government segments were adversely affected by all the economic uncertainty floating around. Still, management expects the fourth quarter will yield a return to organic growth. 

The unpleasant news isn't over yet, though. Tennant lowered its guidance for the year, citing factors like economic uncertainty, unfavorable currency exchange rates, and R&D and capital expenditures.

However, Tennant shareholders can take some solace: there's heartening interest in the company's sustainable ec-H20 water-based scrubbers (part of the reason this stock resides in the socially responsible real-money portfolio I'm managing for Fool.com) as well as the company's continued forays into the Latin American and Chinese markets. 

In fact, sales of the scrubbers featuring the ec-H20 technology increased 9%. Revenues in Latin America and China increased organically by about 10% and 30%, respectively. 

Shareholders can also take solace in Tennant's higher stockpile of cash and the fact that it bumped its quarterly cash dividend up 6% to $0.18 per share. Tennant's still working on launching innovative products and that's good news for the long term, too; it plans to debut 42 new products over the next five quarters. 

Earnings season pity party
Misery loves company, so they say, and Tennant isn't the only corporation experiencing macro-driven adverse effects. Caterpillar (NYSE: CAT  ) lowered its full-year outlook as its dealers slowed down their equipment purchases in view of the economy and slowed-down mining expenditures, for example.  

United Technologies (NYSE: UTX  ) , which is another general equipment provider, also cut its full-year-revenue outlook due to slowing demand for certain equipment and rafts of uncertainty. Military spending cuts have also had an adverse effect on several of its units. 

On an even broader level, highly diversified conglomerate 3M (NYSE: MMM  ) has cited the grim "current economic realities" and "slow-growth economy" as it slashed its yearly guidance as well.

Tennant shares have lost ground since I purchased a stake for my real-money portfolio in March, but I'm not concerned about such a short time frame anyway. Continued initiatives into sustainable cleaning for a better and safer world and continued research and development are winning attributes in uncertain times.

For those who are looking for stock opportunities in the current economic maelstrom, Tennant's a bargain-priced-stock idea even if it doesn't have the flash and name recognition of some of my other portfolio picks (take Starbucks (Nasdaq: SBUX  ) , a two-time purchase that everyone knows about).

Meanwhile, Tennant sports a PEG ratio of 0.82, indicating a very undervalued stock for the long term, and sustainability initiatives give it a growth-oriented advantage. At the very least, Tennant's a solid hold that can really clean up in a brighter future.

Caterpillar is the market share leader in an industry in which size matters, and its quality products, extensive service network, and unparalleled brand strength combine to give it solid competitive advantages. Read all about Caterpillar's strengths and weaknesses in our brand new report. Just click here to access it now.

Alyce Lomax owns shares of Starbucks. The Motley Fool owns shares of Starbucks and Tennant Company and has the following options: short JAN 2013 $47.00 puts on Starbucks. Motley Fool newsletter services recommend 3M Company, Starbucks, and Tennant Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2075614, ~/Articles/ArticleHandler.aspx, 9/22/2014 10:27:34 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement